Layoffs, sales cuts seen as govt appeals WTO decision on sin tax

The local distilled spirits industry is facing sales cuts and job losses while the Philippine government appeals its case with the World Trade Organization (WTO) this September. The WTO Panel ruled last August 15 that Philippine excise taxes on imported distilled spirits discriminate against foreign brands from the United States and Europe. Olivia Limpe-Aw, president of Distilled Spirits Association of the Philippines (DSAP), said, “This is by far the biggest threat to the industry." "Our mass market (economy category), which comprises over 90 percent of the population, will be affected by a sharp rise in prices of distilled spirits if and when excise taxes are harmonized," she told GMA News Online. The distilled spirits include whisky, brandy, rum, gin and vodka. She said the gross sales of the local distilled spirits industry in 2010 amounted to P50 billion or almost $1 billion, with millions of workers dependent on the industry. Appeal to WTO DSAP, the Department of Trade and Industry (DTI), the Office of the Solicitor General and legal counsels are drafting the Philippine government’s appeal to the WTO, which will be submitted to the Appellate Body later this month. DTI Undersecretary Adrian S. Cristobal Jr. told GMA News Online that the Philippine government has always maintained that its excise tax regime is non-discriminatory and in line with its WTO obligations. “We believe this appeal process will clarify and uphold the consistency of our measures with the Philippines’ WTO commitments," he said, but refused to disclose the details of the appeal because of the ongoing dispute. “But we believe the Philippines has presented very good arguments and factual evidence to support our case throughout this dispute process," he said. Geneva, Switzerland-WTO is the only global organization that deals with the rules of trade between and among nations, ensuring a smooth, predictable and free trade. Governments negotiate trade agreements and settle trade disputes with the WTO. It has 153 members, including the Philippines which has been a member since January 1, 1995. 90-day process Cristobal said the appeals process normally takes 90 days, so the WTO’s Appellate Body will likely have its decision by the end of the year. He said the Philippines, the United States and the European Union, including other interested third party WTO members, will have an opportunity to submit to the Appellate Body their views on the Panel’s findings and conclusions in its report that was circulated to all members last August. “We also expect the Appellate Body to conduct one oral hearing to facilitate an interactive discussion among the parties, which will provide the opportunity for the parties to further clarify our written submissions and for any follow-up questions," he said. Cristobal said the government will respect the decision of the WTO Panel and the Appellate Body. “But we are duty bound to exercise our rights under the multilateral trading system to make a case for our domestic legislation and practices, which we maintain as consistent with our obligations as a WTO member," he said. Should the appeal be partially or totally granted or denied, the government will have to wait for the specific recommendations of the Dispute Settlement Body when it adopts both reports of the panel and Appellate Body, he said. Industry’s side Although WTO disputes are examined on a government-to-government level, the Philippine government works closely with the local industry, considering their opinions and views in preparing an appeal to the WTO. Limpe-Aw, also president of Destileria Limtuaco & Co. Inc., said DSAP has engaged the services of WTO legal experts to provide the government legal team with technical and legal support. She said the local industry also imports from Brazil, South Africa and Indonesia about half of the requirements for alcohol or neutral spirit from molasses. “The same excise tax rates are applied to both imported and domestic alcohol. An example is the imported Bacardi Rum, which is taxed the same rate as our local rums. There is really no discrimination," she said. She said over a million families depend on the industry, including alcohol distillery workers, bottling factory workers, sales people, merchandisers and delivery personnel. upstream industries like the sugar industry will also be adversely affected, according to the DSAP president. The sugar industry directly employs half a million workers and indirectly, about 5 million. “The local industry also provides junkshop owners with livelihood opportunities and 700,000 microentrepreneurs that run small retail outlets or sari-sari stores," she said. Tax rates According to Section 141 of the National Internal Revenue Code (NIRC), excise taxes apply to both local and imported distilled spirits produced from sugar cane, buri palm, nipa, coconut, cassava and camote. The rates of excise taxes on these distilled spirits are P4 to P8 per proof liter, according to the NIRC. Other distilled spirits are taxed on their net retail price per bottle of 750 milliliters, ranging from P75 for P250 per bottle to P300 for P675 per bottle. Distilled spirits is the substance known as ethyl alcohol, ethanol or spirits, including all dilutions, purifications and mixtures. DSAP is composed of local distilled spirits producers San Miguel Corporation, Tanduay Distillers Inc., Emperador Distillers Inc. and Destileria Limtuaco & Co. Inc. — OMG/VS, GMA News